The intensification of geo-conflict has not only led to a rebound in risk aversion, played a direct role in the rise in precious metals prices, but also affected the Fed's determination to start an interest rate hike cycle. In addition, the complex political and economic background overseas seems to make precious metals deviate from the traditional real interest rate pricing framework, soaring all the way to the second-highest level in history of $2078 / oz. Can gold prices continue to be brilliant?
A number of industry insiders interviewed by the reporter said that with the conflict between Russia and Ukraine and the deterioration of geopolitics, especially after the news that Europe, the United States and Russia freeze or even confiscate each other's national, personal and corporate assets triggered a widespread crisis of trust in monetary assets, the hard currency represented by gold highlights more allocation value!
"in the first quarter of 2022, the geopolitical situation replaced the shift in Fed monetary policy as the core factor affecting the trend of precious metals sectors such as gold, while the expected tightening and landing of Fed monetary policy were priced by the market. Inflation caused by the energy crisis continues to soar." Shi Jialiang, a researcher on non-ferrous precious metals in founder medium-term futures, said that in the medium to long term, under the background of geopolitics, credit currency instability caused by currency overissuance, slowing global economic growth and persistently high inflation, the allocation value of gold will still be relatively high.
The precious metals research team of the Jinrui Futures Research Institute said that the conflict between Russia and Ukraine has contributed to the continuous fermentation of market concerns about inflation under high oil prices, which has also supported precious metal prices. It is expected that in the future precious metal prices will continue to play a game around the Russian-Ukrainian conflict and the Fed's expectation of raising interest rates in the short term, and gold prices may maintain a high level before the Russian-Ukrainian conflict takes a substantial turn for the better. However, it is necessary to guard against the fact that the Fed may take more aggressive action to raise interest rates under high inflation. The current market forecasts that the probability of FOMC raising interest rates by 50 BP in May is as high as 68.3%. It is expected that the market will repeatedly play games over the expected difference in the future, and the poor pace of interest rate hikes under high inflation may be one of the important risks for precious metals.
Wang Rong, chief researcher of Guotai Junan Futures Nonferrous and Precious Metals, said that at present, inflation has played an unprecedented important role in the pricing of gold. By tracking the recent US bond yields and gold prices, it has found that the impact of the current nominal interest rate and real interest rate on gold has been relatively weakened, and the solid support below the short-term gold price will maintain high oscillations. Can the price center of gravity move down in the follow-up? It depends on when inflation moderates and whether the economy gives positive or negative feedback.
Wang Rong believes that when inflation significantly exceeds the Fed's inflation target, it will form a strong inflationary inertia that is difficult to reverse. At the same time, considering the harm to other economic variables, it will be difficult for the Fed to "fight inflation with all its strength." what's more, under the disturbance of the Russia-Ukraine incident, the implementation of sanctions against Russia by Europe and the United States will also have a certain impact on its own economic environment. The easing of FOMC interest rate hikes from 50 BP to 25 BP in March is a good proof. Gold is periodically ignoring the upward pressure on real interest rates brought about by a faster rise in nominal interest rates, and the center of gravity of gold prices remains high in line with inflation. Strategically, gold can choose to do long every bargain.
